QuidelOrtho Corporation

Welcome to the QDEL or the Second Quarter 2022 Financial Results Conference Call and Webcast. At this time, all participants are in a listen-only mode. For those of you participating on the conference call, there will be an opportunity for your questions at the end of today's prepared remarks. Please note, this conference call is being recorded. An audio replay of the conference call will be available on the company's website shortly after this call. I would now like to turn the call over to Brian Brockmeyer, Vice President of Investor Relations. Please proceed.

Thank you, Operator. Good afternoon, everyone, and welcome to the Quidel Ortho Second Quarter Financial Results Conference Call. With me today to discuss our financial results are Doug Bryant, Quidel Ortho's Chairman and CEO, and Joe Buskey, Quidel Ortho's Chief Financial Officer. This conference call is being simultaneously webcast on the Investor Relations page of our website, and a version of today's presentation can be downloaded there. Before we begin, I will cover our safe harbor statement. Some of the statements we will make during this call about the company's future expectations, plans, and prospects constitute forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, which provides a safe harbor from such statements. Our use of forward-looking statements is subject to a number of risks, uncertainties, and other factors that could cause actual results to differ materially from our current expectations. These risks and uncertainties include, but are not limited to, those factors identified in the joint proxy statement prospectus, our quarterly report on Form 10-Q that we plan to file tomorrow, and our other filings with the SEC. Please refer to our SEC filings for a more detailed discussion of forward-looking statements and the risks and uncertainties of such statements. We cannot assure you that the forward-looking statements we make or are implied by our statements will be realized. Furthermore, this conference call contains time-sensitive information that is accurate only as of today. Access is required by law. We undertake no obligation to update any forward-looking statement or time-sensitive information to reflect future events, developments, or changed circumstances, or for any other reason. Also, during today's call, to facilitate a comparison of the company's operating performance from the second quarter of 2021 to the second quarter of 2022, we will be discussing supplemental second quarter 2022 and 2021 revenues and adjusted operating results, as if Quidel and Ortho had been combined for the ethical periods. We'll refer to this information as our supplemental combined information. This supplemental combined information as well as certain other items we will discuss do not conform to U.S. generally accepted accounting principles or GAAP. Please see slide three for a list of non-GAAP measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are included in the appendix of the investor presentation and press release issued this afternoon. both of which are available on the investor relations page of the Quidel Ortho website. Lastly, as stated otherwise, all year-over-year revenue growth rates, including revenue growth ranges given on today's call, are given on a comparable constant currency basis. Now, I'd like to turn the call over to Doug Bryant, Quidel Ortho's chairman and CEO. Doug?

Thank you, Brian. Good afternoon, everyone. As Quidel and Ortho have combined to become Quidel Ortho, This is our first call as a combined company. Thanks for joining us. I sincerely appreciate your time and your interest in our company. For those of you that were either shareholders of the Ortho business or are entirely new to our story, I joined Coidel Ortho from the Coidel business, where I was president and CEO for more than 13 years. Along with Brian, joining me on this afternoon's call is our Chief Financial Officer, Joe Buskey. Both Joe and Brian join us from the Ortho Clinical Diagnostics business. I'm happy to have them joining me on this afternoon's call. Beginning with our results, we delivered strong performance, highlighted by 37.5% supplemental combined revenue growth, 32% supplemental combined adjusted EBITDA margin, and triple-digit supplemental combined adjusted EPS growth as the newly formed team did a terrific job in executing on our strategic priorities. Excluding COVID, supplemental combined revenue grew 9% year-over-year. I'm very pleased with the way both of our organizations have engaged each other and coalesced in such a short amount of time. We had strong execution across the Quidel Ortho businesses as our commercial R&D and operations teams maintained their focus on both near-term and longer-term growth opportunities. Supplemental combined revenue for the second quarter, including both Quidel and Ortho for the full quarter, reached $898.5 million, supported by double-digit growth in point-of-care and molecular diagnostics, along with solid high single-digit combined growth for labs and transfusion medicine. As we review our notable achievements in the quarter, I'd like to introduce our five strategic priorities, which are, one, integration and corporate culture, two, product innovation, three, global commercial excellence, four, operational excellence, and five, capital deployment. And I'll start with the integration and our culture. The integration of the two organizations is our top priority. As I emphasized on prior calls, we started on the pre-integration work almost immediately following the announcement of the signing of the business combination agreement in late December, enabling us to hit the ground running with the integration immediately after we completed the transaction at the end of May. As we work through the integration, we are focused on maintaining business as usual, keeping our unrelenting focus on our employees and commercial excellence while preserving the best attributes of both cultures as we define our company going forward. We made substantial progress since the transaction closed on May 27th. We achieved over 240 critical integration milestones, identified over 100 integration projects and are executing on over two dozen functional and cross-functional work streams. He announced my leadership team as well as other senior executives, developed business unit structures, announced regional leaders, and established systems integration roadmaps. We appointed a strong integration leader who is focused on cultural alignment combining our operating models and monitoring plans for our specific G&A synergy targets. To minimize customer disruption and maintain our industry-awarded service levels, regional commercial leaders were announced soon after we closed, and we are organizing the joint commercial efforts as quickly as possible, beginning with a U.S. lead sharing program that is expected to accelerate cross-sales. Through this process, we are finding that the two organizations balance each other quite well. Quidel has proven to be agile and innovative, allowing it to take advantage of market opportunities to grow rapidly. Ortho, on the other hand, with its long history in the diagnostics market, has established global infrastructure and processes that enable its stable 93% recurring revenue. That balance of agility and stability is critical as we plan to drive market share gains by responding to the needs of the market more quickly and serving our customers better than some of our bigger competitors. As discussed on prior calls, we expect to realize cost synergies from the transaction of $90 million and cross-selling revenue synergies of over $100 million by the end of year three following transaction close, though we do expect the commercial momentum to continue beyond that time frame. While our integration is still in the early days, the pieces are aligning and the chemistry is even better than expected, which is remarkable given our high expectations. With this progress in mind, our leadership team is even more excited now than when we first announced the deal. Moving on to product innovation. In addition to executing against our integration plans, our team is working to further advance our product pipelines. We will continue to make significant investment in R&D to advance Savannah, our new molecular multiplexing platform, while supporting continued expansion of both our SOFIA and B-Trust test menus. Across the board, we've made good progress on the approximately 100 R&D projects we currently have underway. Long-term, we plan to continue to invest in R&D to develop and broaden our portfolio, which we will leverage to accelerate worldwide market penetration. As chairman early on, I made the decision to establish the Science and Technology Board Committee to oversee and advise management on innovation, new product development, and strategic R&D goals and objectives, which I think is critical at this point in time. Led by our lead independent director, Dr. Ken Buechler, the co-founder of BioCite and the creative genius behind the development of the Triage product line, The members of this committee have incredible expertise that we will leverage. Next, while I won't talk about all the projects on this call, I can provide you with a few updates on some of our key growth drivers, starting with our point of care business unit. We are driving progress on SOFIA, which has come a long way in a few short years. Since the pandemic began, we grew the SOFIA install base by approximately 90%. to 80,000 instruments. The vast majority of this installed base remains active, and most of the instruments replaced during the pandemic included signed three-year contracts to run COVID, flu, strep, and RSV tests. This is driving strong growth for all these assays. Joe will expand further, but our non-COVID revenue per analyzer is up significantly over the last year. which justifies the many R&D projects underway to further expand our SOFIA test menu. Our commercial team is focused on driving menu pull through on SOFIA and supporting incremental per unit revenue growth. Importantly, our significant leadership position in the flu testing market has translated into significant demand for our ABC combo test that tests for both flu A and flu B as well as COVID-19. We are also excited about our progress toward delivering the first high sensitivity cardiac troponin solution for the point of care market. Due to the pandemic, the clinical validation has taken longer than originally planned. Our 18 clinical sites are continuing to enroll subjects with the expectation of meeting the FDA's performance criteria later next year. We expect the 510 submission will follow shortly after the completion of the clinical validation and will utilize the combined cardiac expertise of both Quidel and Ortho. We expect that the review and subsequent clearance will occur in the normal timeframe, but there is no guarantee of the effects of the pandemics and EUA filings will have resolved by the time of the submission. We are selling in Europe and intend to increase the rollout. Once launched in the U.S., we are confident that our current customer base will readily adopt the new assay. More broadly, our integration work has uncovered greater potential cross-selling opportunities for triage through our global sales team than initially anticipated in our synergy planning. In our labs business unit, we launched seven new assays globally in the quarter. Most notable was the OUS launch of hemoglobin A1C, which has seen very strong demand and significant opportunities in our sales funnel. We expect to launch in the U.S. in the second half of this year. Additionally, we have continued to support several studies with our COVID IgG quant assay, demonstrating the correlation of our assay to neutralizing antibodies, as well as a larger CDC study focused on population antibody levels and breakthrough infections. We believe these studies could better our understanding of immunity and may help inform public health recommendations related to COVID vaccination and precautions in the future. Turning to transfusion medicine, we're seeing strong growth following the completed refreshment of our transfusion medicine portfolio last year. We are pleased to announce that Quidel Ortho reached a major milestone for vision placements by surpassing 5,000 installations globally during the quarter. This milestone is a testament to our technology, service, and thought leadership in transfusion medicine. We are dedicated to providing best-in-class technology and solutions in this area. Lastly, in molecular diagnostics, we continue to march forward to secure global regulatory clearances for our Savannah molecular multiplexing platform. Our limited European launch of Savannah with RBP4 continues to go well with some early wins. As manufacturing capacity ramps, we plan a full European launch in Q4, followed by 2023 menu expansions. Stateside, we completed the Savannah EUA submission with RBP4 in May and continue to make progress toward the 510 submission expected this year. We expect that submission We expect that that submission will be followed by 510K submissions for four additional panels in 2023. Looking at global commercial excellence, our third strategic priority. We're firing on all cylinders to advance commercial excellence across multiple channels. With a relentless focus on base business execution, we are exceeding our revenue synergy targets at this time. We've kicked off cross-selling of our combined product portfolio through our global commercial teams with a fresh prioritization of OUS opportunities crystallized through our expanded commercial team. Specifically, we have initiated go-to-market programs in both the US and China to reflect the new combined capabilities. Overall, our commercial integration efforts are accelerating our near-term value creation by identifying quick win opportunities by country and region and ways to make the best use of our in-market organizations along with existing distributors. As such, we believe we are on track to deliver on our 2023 revenue synergy target. Implementation of Ortho's commercial excellence program across our entire Quidel Ortho organization is well underway. We track multiple key performance metrics to enable us to deliver our products, promises, and a customer experience that is second to none. And the results we see are compelling. We're driving market penetration of our integrated clinical lab instruments and enabling the pull through of recurring revenue. In the process, our lab business has gone from low single digit to mid single digit growth. In a quarter, Our Vitros integrated analyzer installed base grew by 12% year-over-year, including the double-digit growth in Europe, Middle East, and Africa, China, and our other OUS regions, and high single-digit growth in North America. Customer-centered service and follow-through are key components of our commercial excellence strategy and have been central to the Quidel and Ortho cultures long before the combination. Our ability to provide quality customer service is critically important and highly valued across our customer base. To this end, I am pleased to announce that last week we were ranked first for the seventh consecutive time in the service track clinical laboratory survey for integrated systems, which includes the top ranking in customer service and overall system performance. We are also recognized as number one and overall service performance for chemistry and amino assay systems. Importantly, as part of the ranking, ServiceTrac records a net promoter score for each of the vendors. Quidel Ortho's score was 20 points higher than our next closest competitor, highlighting that this is a first-class service organization, which along with lengthy mean time between service calls of our vitreous analyzers is a competitive advantage, which portends well for Quidel Ortho's growth in this category. In terms of the OTC space, we continue to strengthen our positioning through our QuickView at-home OTC COVID-19 test. During the first two years of the pandemic, we scaled our US-based manufacturing capacity exponentially and now have the automated production lines and trained personnel to produce millions of quick view at home tests a month on the low end and ramp weekly output to tens of millions of tests in a matter of months. While we have adjusted our capacity and contingent employees to support softer demand at the end of the first quarter, we have maintained capacity as part of our warm base manufacturing initiative and recently began to ramp up production giving us the ability to respond to demands of our customers and the U.S. government as caseloads change. We have the relationships in place with retailers so that if these new variants become more prevalent, we expect to have competitive shelf space. We are currently working with CVS, Walgreens, Amazon, and other major retail distributors on ways to expand our availability and are excited that QuickView recently became available via Amazon Prime. We also sell through over 5,000 independent pharmacies via our partnership with McKesson and are continuing to pursue additional partnerships with institutional and government agencies to advance testing accessibility. We did complete the 108 million test U.S. government contract in the second quarter. Discussions with the U.S. government are ongoing, but we aren't including further government orders in our revenue expectations at this time. Turning now to operational excellence. This is a bit of a soup-the-nuts category, but I point you to a metric that is both a roll-up and a single data point to watch. We believe we are on track to deliver a third of our targeted 90 million cost synergies in 2023. We are well on our way with competitively bidding insurance and audit fees, technology agreements, and indirect sourcing consolidation projects. and eliminating duplicate costs as we bring the businesses together. Our cost synergy target does not include the $45 million in interest expense savings that we have secured. Achieving our cost synergies is critical to our integration planning, and accordingly, the board and I decided to hire a chief administrative officer to run the integration and strategically build on our corporate culture. We want to build our brand reputation so that we are an employer of choice, able to attract and retain talented people for all levels with engaging and rewarding careers, keeping people happy and engaged and productive. These are all areas on which our Chief Administrative Officer is focused. Strengthening our supply chain is another operational priority to help meet our customer commitments. Given our experienced supply chain team, coupled with our strong balance sheet and cash flow, our capacity to stabilize our supply chain and inventories could become a differentiated capability that we would leverage to compete in the marketplace. If we make it a priority and a must-have, it could potentially make supply chain a competitive advantage. All companies are facing supply chain challenges, but not all will be able to address them equally. Regardless of location, figuring out how to leverage all our plants and equipment to drive our business forward is a priority. Right now, for a number of products, there is more demand than we have been able to meet, and we are working to hire new teams throughout all our factories to step up capacity. For example, we know there is more demand for clinical chemistry consumables, integrated instruments, and Savannah than we have been able to produce. And while production is ramped, we are managing our customer contracts and expectations based on our ability to deliver instruments with the availability of semiconductor chips as well as the availability of consumables. Again, building out redundancy across our supply chain is so important as we believe it could turn into a competitive advantage, allowing us to meet elevated demand when our key competitors may not. Last but far from least, on our list of strategic priorities is capital deployment. From this standpoint, our strong balance sheet and cash generation give us the flexibility to allocate funds towards several strategic priorities. We look at our capital deployment opportunities in five buckets, investing in R&D, manufacturing capacity expansion, debt paydown, share repurchases, and strategic M&A. Investing in our business is critical to our growth, which is why investing in R&D and in our manufacturing capacity are our top capital deployment priorities. We are investing in R&D, both supporting menu expansion across our platforms while also driving development of innovative new instruments and technologies. We are also putting money into building additional manufacturing capacity to meet demand for our broad portfolio, including Savannah and consumables for our BTROS analyzers. The next item is debt pay down. The combination of Quidel and Ortho is structured such that we have a very attractive debt profile, which we intend to improve over the coming years as we work through our current integration plans. Also under consideration is returning capital to shareholders via a share repurchase program. Strategic M&A is our lowest capital deployment priority, But we will consider the right opportunities as they present themselves. We will continue to be very selective and opportunistic, valuing the right organizational fit as our main criterion. If we execute on all five of these strategic priorities, we believe that we will be better positioned to drive innovation, support long-term growth, and unlock shareholder value. In closing, I'd like to thank all the Coidel Ortho team for their incredible work and commitment to bring us to this point. We have many opportunities ahead of us to continue driving improved outcomes for our patients across the globe as we expand our portfolio, extend our reach, and make progress in integrating our organization. I look forward to advancing this mission to drive long-term growth for our business. With that, I'd like to turn the call over to Joe to further discuss our Q2 financial results and 2022 guidance. Joe? Thanks, Doug.